Investing.com -- UBS analysts said they remain bullish ahead of Nvidia’s earnings report next week, expecting the AI darling to deliver strong results and guidance that could keep the stock moving higher.
Accordingly, the investment bank has raised its price target from $150 to $185, implying more than 27% upside from current levels.
UBS forecasts Nvidia (NASDAQ:NVDA)'s third fiscal quarter (October) revenue to be in the range of approximately $34.5 billion to $35 billion, with fourth fiscal quarter (January) guidance around $37 billion, potentially rising to $39 billion once Nvidia reports its fourth-quarter results in early 2025.
Analysts led by Timothy Arcuri note that the “biggest blind spot” in its forecasts is the gross margins, which they expect to decrease by about 200 basis points in the first fiscal quarter to the 73% range. However, “anything below this could be viewed negatively by investors,” they added.
In broader terms, analysts point to a favorable capital expenditure (capex) environment among hyperscalers, with increasing expenditures likely to narrow the gap between their capex and Nvidia's incremental data center revenue for the calendar year 2025.
UBS also highlights sovereign AI as a significant demand driver for Nvidia's products, noting that spending by large sovereign states, especially in the Middle East, could rival that of major US hyperscalers in the coming years.
Although the return on all of this investment remains a key debate among investors, analysts point out several “encouraging signs.” These include Google (NASDAQ:GOOGL)'s revenue growth in search and cloud sectors, Amazon (NASDAQ:AMZN)'s cost savings through the use of generative AI, and the rapid expansion of AI use cases in both public and private sectors.
In their model, UBS has adjusted their revenue estimate for Nvidia's fourth fiscal quarter from approximately $37.3 billion to around $38.9 billion. This includes the expectation of mid-teens quarter-over-quarter growth in the Data Center segment to nearly $35 billion.
The firm projects the Data Center's revenue growth will continue into the first fiscal quarter of 2026, exceeding $40 billion, driven by the ramp-up of the new Blackwell product.
It also reflected on recent media reports regarding potential US restrictions on high bandwidth memory (HBM) shipments to China, stating that it sees a low risk of Nvidia's H20 product being affected by such bans. UBS's team believes any restrictions would likely be implemented “at the discrete module level.”